Answering a question with another question is often thought to be rude; however, when it comes to Chapter 7 bankruptcy, it is absolutely necessary. So, my question to you is: Do you want to keep the vehicle? If your answer is: “Yes, I want to keep my car,” then there are ways for you to do it. If the answer is: “No, I don’t want to keep the vehicle,” you don’t have to, and you can surrender the vehicle back to the secured creditor. Let’s talk about surrendering a vehicle in Chapter 7 first.
Surrendering a Vehicle in Chapter 7
Many times, when a debtor surrenders their vehicle in Chapter 7 it is because the vehicle is upside down. Being upside down on a vehicle means that you owe much more money on the vehicle than what the vehicle is worth. For example, let’s say you owe $20,000 on a car that is only worth about $8,000 in its current condition. If you were my client, we would have a serious talk about whether it is in your best financial interest to keep this motor vehicle when you could easily surrender it and get into another vehicle that is not such a financial burden.
Redemption of Your Vehicle
Alternatively, you may want to redeem the vehicle under the bankruptcy code. Redemption is where you ask the court to allow you to buy the vehicle for $8,000 immediately. Of course, the creditor will object, and you will probably need to attend a hearing on the matter. But, if you have access to funding and are able to do so, it may be in your best financial interest to use this tool.
Keeping a Vehicle in Chapter 7
Under Florida law, if you want to keep your vehicle in Chapter 7 you are allowed to exempt some portion of the equity in the vehicle. The amount of your exemption will depend on your current circumstances. This will need to be discussed with your attorney. After you’re allowed exemption, you will need to determine how much equity you have in the vehicle, if any.
For example, let’s say you have a vehicle worth $20,000 and you owe $15,000 on it. If you’re allowed exemption is $1,000, you would have $4,000 of excess, unprotected equity in the vehicle. Theoretically, that excess equity belongs to your bankruptcy estate. You will be allowed to buy back your excess equity in the vehicle from your bankrupt estate. The Chapter 7 trustee would rather have you buy back the equity from the estate, sell the vehicle and give you back your $1,000 exemption amount, and then distribute the remaining $4,000 to the creditors.
Another example would be if you own a car worth $20,000 and you owe $20,000 on it. In this example, you may consider entering into a reaffirmation agreement with the creditor. The easiest way to explain a reaffirmation agreement is to imagine that on the day of the filing of your Chapter 7 bankruptcy, your contract with the secured creditor on your vehicle is dead. A reaffirmation agreement breathes life back into that dead contract, and you would go about making your monthly payments in accordance with the revived contract.
There are downsides to a reaffirmation agreement that need to be considered before signing. Any questions you have about a reaffirmation agreement should be discussed with your attorney prior to signing and submitting the agreement to the court.
The Dellutri Law Group, PA Can Help You Protect Your Equity
In a nutshell, there are many ways to protect your equity in your vehicle and keep your vehicle after you file for Chapter 7 bankruptcy. On the other hand, if you want to surrender a vehicle, Chapter 7 bankruptcy can also help you do that.
As you can see, Chapter 7 bankruptcy can be used for financial planning purposes. If you’re finding it difficult to make payments on a vehicle that is severely upside down, you may want to reach out to us for a complimentary strategy session where we will discuss your options with regard to that vehicle and your other critters.
To learn more, contact us online or by dialing (800) 391-4337.